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Technical Research

Comprehensive FX and Futures Daily Research

Thu, Jul 2 2009, 16:47 GMT
by FastBrokers Research Team

FastBrokersFX

EUR/USD Reverses from our 3rd Tier Downtrend Line


The EUR/USD is losing yesterday’s positive momentum after employment data from both the EU and U.S. showed rising unemployment continues to be a thorn in the side of the economic recovery. The EU’s unemployment rate came in at 9.5%, two basis points above analyst expectations, while the previous release was revised upwards by one basis point. As for the U.S., America’s unemployment was also reported at 9.5%, a basis point below analyst expectations. However, its non-farm employment change was much lower than anticipated (-467k vs. -360k). Additionally, weekly unemployment claims remain at a 600k+ level with average hourly earnings dropping to a flat 0.0%. Although the global economic stimulus packages have helped boost production and manufacturing, job creation in both the EU and U.S. hasn’t benefited as much as governments had hoped. The bleak state of unemployment is dragging on the EUR/USD due to the negative reaction of U.S. equities and crude. The EUR/USD is positively correlated with the S&P futures, so investors should monitor the S&P and its interaction with its highly psychological 900 level. We suspect volatility may remain high throughout today’s session since Friday will be shortened due to the July 4th weekend.

The ECB kept its benchmark rate unchanged at 1% as analysts expected. We believe the ECB will keep a neutral stance as far as monetary policy is concerned as the central bank monitors the impact of its purchase of covered bonds. Investors should also keep in mind the EU opened a roughly $615 billion liquidity window to banks last week in the form of 1 year 1% loans. The ECB wants to see how these alternative liquidity measures impact the credit markets and availability of funds to struggling EU exporters and manufacturers. However, the ECB has been prone to surprise the market in the past in order to induce a monetary shock, so investors shouldn’t be complacent and expect the ECB to stay quiet for too long.

Despite the pullback in the EUR/USD, bulls should be encouraged that volume hasn’t spiked to an abnormal level. Furthermore, the EUR/USD is finding support in our 2nd tier uptrend line and the psychological 1.40 level. As a result, it seems the EUR/USD may carry its trading range into next week. The trading range could get tighter soon since investors may wait for our 1st tier uptrend and 3rd tier downtrend lines to approach their inflection point before making a key directional decision. Hence, investors may want to view the 2nd quarter earnings reports and updated guidance from corporate officers over the next couple weeks before committing to either trend. On the other hand, should either our 1st tier uptrend or 3rd tier downtrend line break, investors could see the formation of a new directional leg.


Present Price: 1.4050
Resistances: 1.4059, 1.4097, 1.4114, 1.4141, 1.4167
Supports: 1.4024, 1.40, 1.3978, 1.3937, 1.3889
Psychological: 1.40






GBP/USD Sinks after Negative Data Stream


The Cable is reacting negatively to the negative unemployment data points from both the U.S. and EU. Additionally, Britain’s construction PMI contracted from its previously release, coming in below analyst expectations. The positive sentiment the Pound has garnered over the past couple months has been dented by the disappointing GDP and current account data released earlier this week. Additionally, we’ve recently seen key British data points, such as today’s construction PMI number, take a step back from their recovery uptrend. Therefore, our 1.6212 support may be tested again due to the questions raised by mixed data points. Britain will release two more heavily-weighted data points tomorrow, including its services PMI and the Halifax HPI. While home prices will likely continue to improve, it will be interesting to see whether the services PMI can keep its uptrend going, or if it contracts like today’s construction PMI.

Meanwhile, the S&P futures are retesting 900 again and crude is logging large losses on climbing volume. Investors should take note since these two investment vehicles are negative correlated with the Greenback, or positively correlated with the Cable. If the S&P can’t hold onto June lows and crude experiences technically significant losses, the GBP/USD would likely follow suit. If our 2nd tier downtrend line doesn’t hold, we may see today’s pullback pick up pace towards our 1st tier uptrend line. We believe our 1st tier uptrend plays a key role in regards to the near-term direction of the Cable. Therefore, investors should keep a close eye on this area should it be tested. While volatility should remain at a heightened level today due to the news and the fact that it’s a holiday shortened week, we expect our 1st tier uptrend line to hold since investors will likely wait to see how the S&P behaves between 875-900. In the meantime, we maintain our neutral stance trend-wise on the Cable until the currency pair makes a clear break from either our 1st tier uptrend line or 3rd tier downtrend line.

Present Price: 1.6352
Resistances: 1.6405, 1.6446, 1.6449, 1.6553, 1.6602
Supports: 1.6323, 1.6278, 1.6245, 1.6212, 1.6183
Psychological: 1.65, 1.60






USD/JPY Declines with Pullback in U.S. Equities


The USD/JPY’s little rally is fading again as volume subsides. It seems the USD/JPY is dribbling to a dead-halt directionally with four consecutive lower highs (4/6, 5/7, 6/5, and now 7/1) combined with two consecutive higher lows (5/22, 6/23). The currency pair remains stuck choosing between the two deteriorating economies of Japan and the U.S. While worse than expected Tankan data provides upward buoyancy on the USD/JPY, negative unemployment data and falling U.S. equities create a downward pressure on price. Hence, we see a tight, constrictive trading range in the USD/JPY. The currency pair is following the negative data out of the U.S. and EU today, dipping back towards our 2nd tier downtrend line. Meanwhile, investors should keep a close watch on the S&P to see how the futures deal with the 875-900 range. If the S&P’s bottom-end supports don’t hold and a new leg down forms, this movement may be enough to send the USD/JPY falling towards our key 1st tier uptrend line.

Present Price: 96.15
Resistances: 96.33, 96.90, 97.45, 98.05, 98.66
Supports: 95.73, 94.99, 94.45, 93.76, 93.32
Psychological: 95, 100







Gold Holds onto June Lows despite Pullback in Equities


Gold is behaving pretty well today considering the size of the selloff taking place in U.S. equities markets. It seems the pullback in the S&P has already been factored into gold during the precious metal’s rapid decline in June. Gold is holding onto June lows with the EUR/USD and GBP/USD fighting to keep their respective technical supports intact. Though gold reacted negatively to the discouraging unemployment data out of the U.S., volume has been under control. However, we will have to see how the 16:00 bar on the 4-hour fares volatility wise, and whether the precious metal chooses to retest June lows. The technical key to the downside will be our 1st tier uptrend line. Below here, gold has June lows and naturally the highly psychological $900/oz level. Due to the July 4th holiday-shortened week, investors may not have enough ammo to send the S&P futures tumbling below their June lows. Gold would need a technical statement to the downside such as this for the precious metal to compromise its own June lows. Gold will likely take its cue from the S&P and its behavior between 875-900. Therefore, investors should keep a close eye on U.S. equities and their reaction to upcoming 2nd quarter earnings reports.


Present Price: $928.18/oz
Resistances: $930.56/oz, $932.29/oz, $934.36/oz, $936.78/oz, $939.37/oz
Supports: $927.98/oz, $925.24/oz, $923.59/oz, $921.41/oz, $918.99/oz
Psychological: $900/oz






Crude Threatens to Test June Lows


Crude futures continued yesterday’s slide on rising volume with the futures crashing beneath our 1st tier uptrend line. Crude, along with U.S. equities, is reacting negatively to today’s disconcerting unemployment data. Crude futures are ignoring yesterday’s inventories coming in shallow for the 7th time in 8 weeks, and are focusing more on the impact of climbing unemployment on the demand side. Furthermore, we can’t dismiss the IEA’s downward revision of global demand for crude over the next five years. The defeat of our 1st tier uptrend line certainly gives us pause since this could be an important technical development for the near-term. Crude futures are presently holding onto 6/23 and 6/3 lows with the S&P hovering around 900. If the S&P can’t hold its own June lows, then we may see similar contractions in both crude and gold beneath their respective June lows. Despite the negative technical developments taking place in the market, crude should have enough strength to hold onto June lows since it’s a holiday-shortened July 4th week. Investors may wait to see how 2nd quarter corporate earnings fare before causing irreparable damage to crude’s uptrend.

Crude’s present downturn isn’t unexpected since the commodity has been on a tear so far this year with investors pricing in a global economic recovery. The question now becomes whether investors take this as a temporary setback, or whether the pullback has the momentum to head towards $60/bbl. If June lows don’t hold, crude may not experience substantial support until the $60-$61/bbl range. Due to the failure of our 1st tier uptrend line and the rising volume on the sell-side, it seems pressure to the downside is increasing. Therefore, while we may see a slight rebound Friday, it appears a new near-term downtrend is coming into play. We will have to see how the S&P interacts with its 875-900 range before we can anticipate how protracted crude’s present pullback will be.


Present Price: $70.27/bbl
Resistances: $66.96/bbl, $67.37/bbl, $67.77/bbl, $68.07/bbl, $68.45/bbl
Supports: $66.61/bbl, $66.29/bbl, $65.93/bbl, $65.48/bbl, $64.86/bbl
Psychological: $65/bbl, $70/bbl





S&P Falls into the 875-900 Range with Sentiment Turning Sour


The S&P futures are giving way to their downtrend lines at a critical juncture after today’s data confirmed that America’s employment market isn’t improving with manufacturing and production. The futures are playing with fire again, retesting the psychological 875-900 zone as the downside takes a step up in the debate between trends. Our 1st tier uptrend line and June/mid-May lows serve as what may be the last lines of defense between a minor setback and a more protracted sell-off. While the news has been negative for the most part and sentiment is turning sour, investors may hold off on sacrificing critical supports before seeing some 2nd quarter earnings reports. We’re in the midst of a holiday-shortened week, so this week’s volatility will likely peak today with a slight bounce on Friday.

Correlation-wise, crude and gold are holding onto their respective June lows as investors hold their breath. The 30 Year T-Bond futures are walking along our uptrend line and appear tempted to make another short-term breakout. Meanwhile, although the Greenback is appreciating across the board, we haven’t witnessed any significant technical setbacks in the GBP/USD, EUR/USD, or USD/JPY. Therefore, the overall message is that this week’s economic data has certainly been discouraging, yet bulls want to wait and see how earnings season pans out before giving way to the bears.

The sustainability of global economy’s recovery has been thrown into question once again, leaving the S&P futures exposed. We’ve seen some positive developments in housing, manufacturing and production. However, the results have been mixed while the unemployment rate is rising and savings rate climbing to a 15-year high. Therefore, consumption is likely declining, and it will be interesting to see not only how this has impacted 2nd quarter earnings, but how corporate forecasts fare the rest of the year.

This week’s news and trading activity is making a case for the downtrend. However, we will need to see a failure of our 1st tier uptrend line and June/mid-May lows before reinstating our negative outlook trend-wise on the S&P futures.

Present Price: 898
Resistances: 903.75, 909.5, 919.25, 924, 929.5
Supports: 895.25, 888.75, 881.5, 873.5, 864.25
Psychological: 900







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Published on  Thu, Jul 2 2009, 16:50 GMT